Thursday, 2 January 2014

Tablets face a turning point

The downturn in the personal computer industry may be ready to reach rock bottom, where it could stabilize even as cheap tablets stay hot, an analyst said today.

In a piece published earlier this week on Techpinions (subscription required), Ben Bajarin of Creative Strategies theorized that there are, in fact, “glimmers of hope” for the PC business.

”It appears the PC market is stabilizing in the U.S., meaning that quarterly negative growth is lessening,” Bajarin wrote. “What [the data] also shows is that tablet growth is also slowing in the U.S.”

Bajarin cited numbers from industry researcher IDC and financial firm Morgan Stanley, figures which do show a flattening of the once dramatic growth gains by tablets and of the ongoing PC shipment contraction.

For example, IDC recently estimated that PC shipments will end 2013 on a -10 percnt note, but anticipated that the historic decline would weaken in 2014 to -4 percent before steadying the following year.

The new normal for PC sales

Under those assumptions, IDC expected that the new normal for the PC industry will be approximately 300 million machines shipped annually, a far cry from the “Peak PC” of 2011, when computer makers ordered 364 million systems, but better than the swirl to the extinction drain of the last 24 months.

On the tablet side, IDC just reduced its forecasts, saying earlier this month that growth would slow from 53.5 percent in 2013 to 22.2 percent in 2014, and slump to single digits by 2017.

Bajarin acknowledged that the glimmering he saw was, for now, just that: A glimmer. It will take at least another six months, perhaps longer, for the image to develop.

”There are an estimated 180 million to 200 million four- and five-year-old PCs in use,” said Bajarin in an interview this week. “We’ve seen a major increase in battery life for notebooks [this year], so if people are going to actually upgrade those PCs, it’s got to happen next year. It should be a pretty big refresh cycle.”

But if PC shipments do not pick up, that means people aren’t using those older personal computers; instead they’ve turned to alternatives and may never look back.

Analysts figured that the upgrade cycle would occur in 2012, then switched their forecasts to 2013. But the upgrades failed to materialize in either year. “It hasn’t happened,” said Bajarin. “Last year, consumers held onto a huge number of old PCs.”

They’re doing so for a variety of reasons.

For many, their older PCs are “good enough,” a term that strikes fear into the hearts of PC makers and Microsoft, whose Windows largely relies on new machines for its revenue. The old systems, even those running almost-outdated XP or the reputation-challenged Vista, continue to serve their often-limited functions like email, Web browsing and casual gaming. Realizing that, consumers don’t see the point of upgrading a perfectly useful PC.

For others, the personal computer may be collecting dust because tasks it once performed have been poached by tablets and smartphones.

Tablet diversity

But blaming all tablets for the decline in personal computers is misguided, Bajarin argued. There are tablets and then there are tablets.

Like many industry analysts, Bajarin has wrestled with how to count tablets, how to categorize tablet subsets, and how to compare trends in tablets with those of PCs to see if the mobile, touch-based devices are the reason for the personal computer’s decline.

In other recent commentary, Bajarin has argued that tablets should be put in two buckets: One, dominated by inexpensive, low-powered, small-screen tablets, he has called “media consumption tablets.” The other, which he has labeled “more capable tablets” and sometimes dubbed “tablet personal computers,” is marked by beefier processors, more productive potential and larger screens, such as Apple’s 9.7-inch iPad Air and Microsoft’s 10.6-inch Surface.

It’s the second group, which is smaller than the first, that threatens the traditional personal computer, Bajarin believes. “What we’re observing is that this form factor [of tablet personal computers] is the future of the notebook form factor,” said Bajarin. “The traditional clamshell [notebook] will become challenged in the marketplace in terms of volume.”

As tablet personal computers evolve and replace the iconic clamshell, the former should be counted as “PCs,” Bajarin said, echoing a stance held by Microsoft. With tablet personal computers in the tally, the PC may actually return to a growth trend, reversing the current decline.

”The bulk of these [tablet personal computers] will be 10-in. or less,” predicted Bajarin, referring to screen size. “That will also drive the opportunity for desktops as the one-per-household shared personal computer, while others in the family each have a media consumption tablet or more capable tablet.”

The addition of tablet personal computers to the PC category, and more important, their expected sales volume, could push the industry back into growth, said Bajarin. “The bulk of the volume of PC [shipments] will be desktops and these more capable tablets,” he predicted of the consumer market, looking years into the future.

Good news for Apple and Microsoft?

If true, that would make Apple happy, as it sells the bulk of the tablets in Bajarin’s “more capable” class. But it would also bring some smiles to Intel, which is currently running television ads for what it calls the “two-in-one” category, hybrid devices centered around a tablet that can be undocked or removed from a keyboard.

Microsoft would be grinning as well, since its Surface strategy is right down the middle of the tablet personal computer plate.

”A number of vendors will be extremely aggressive on Intel’s strategy,” said Bajarin, referring to 2014—an emphasis that may shift consumer attention away from the notebook. “The best way to think about a notebook is as a portable desktop, but lot of people don’t need a portable desktop.”

And Apple could further capitalize on the trend if—as some pundits and analysts have speculated—it delivers an iPad “Pro” tablet, perhaps one with a screen larger than the current design, in 2014 to complement the iPad Air.

”If the PC market is stabilizing, this is good news,” said Bajarin on Techpinions. “We could very well be looking at a pendulum swing in the industry, where PC slowdown and [media consumption] tablet slowdown offset each other in particular years. PCs may be slow during [media consumption] tablet refresh cycles and [media consumption] tablet refresh cycles may be slow during PC refresh cycles.”